After The Close
After a positive Tuesday broke a modestly bearish streak of trading, the major U.S. averages all shed considerable value on Wednesday before paring some of the losses in the final hour. Posting the steepest decline was the NASDAQ, which suffered from a combination of subpar earnings and concerning developments overseas, particularly in Turkey. The Dow Jones Industrial Average, S&P 500, and the small-cap Russell 2000 were also meaningfully lower by the closing bell. All but the utility sector spent the day in negative territory, with energy, technology, and basic materials shares registering especially wide losses. Overall, declining shares outnumbered advancing issues by a roughly 2.3-to-1.0 ratio.
Today’s struggles within the Dow, the basic materials sector, and many tech companies can be largely tied to a renewed uncertainty surrounding various trade and geopolitical issues. A strong U.S. dollar has served to only exacerbate investor anxiety related to Turkey, U.S.-China relations, and persistent weakness in emerging markets. These headwinds recently have offset what has been a mostly positive season of quarterly performance reports from Corporate America. In fact, even typically supportive earnings updates were a drag on valuations today, with department store giant Macy’s (M) shedding nearly 15% of its market capitalization today amidst concerns over its long-term top line prospects.
Meanwhile, domestic crude oil fell steeply in value following the morning’s revelation of a higher-than-expected rise in U.S. stockpiles. The Energy Information Administration’s release showed a 6.8 million barrel increase last week, versus a forecasted decline of 2.5 million. Adding to the bearish tone was a report that indicated Chinese buyers have been slowing their rate of purchases of U.S. crude, as Asia’s superpower may end up adding the commodity to its growing list of tariff goods. In all, the per-barrel value fell to a shade above $65, the lowest level in more than two months.
Looking ahead, we expect to see some additional selling pressures as earnings season further winds down. Whether the softness stems from Turkey’s ongoing issues, trade friction between the U.S. and China, or elsewhere, remains to be seen. But the competing influences of a strong economy and uncertain geopolitical sphere will likely remain the primary storyline in equity trading for the next few sessions. Stay tuned.
– Robert Harrington
At the time of this article’s writing, the author did not hold positions in any of the companies mentioned.
Before The Bell
How quickly things change on Wall Street these days. To wit, after weeks in which the focus had been on trade matters with Europe and more recently China, the attention now has turned to Turkey, a country much smaller than either China or most countries in the euro zone, but a nation with big economic problems at the moment. Specifically, Turkey's lira has plunged in recent days as that nation has been threatened with major tariff increases from the United States. The country's stock market, already reeling, has sold off more and the mounting crisis has begun to affect the markets stateside, with notable selloffs on Friday and Monday this week.
However, after those back-to-back down days, which combined to pull the Dow Jones Industrial Average lower by a combined 320 points, the market attempted to rally yesterday morning. And it did so with some success, as early action lifted the blue chip index to an upturn of about a hundred points. The comeback, meantime, was fairly broad, with advancing issues easily topping declining stocks by some three-to-one as the first hour of trading concluded. Meantime, nine of the ten largest equity groups were higher at that point, with only technology under water. It was a broad, if not very sizable advance by Wall Street at that juncture.
In other news, energy shares jumped on higher oil postings on our shores, while the Turkish lira rebounded some 4% after massive declines on Friday and Monday. Meanwhile, sentiment on that ailing nation seems to be divided. Some contend that this is just the tip of the iceberg, while others suggest that as Turkey is not part of the euro zone, it has less impact on the Continent's banks. We shall see. Relations between the United States and Turkey, already tense, have deteriorated further in recent weeks, exacerbating the economic turmoil in that country.
As to the market, stocks continued to rise nicely as we passed the first hour of trading in New York, and rose further as the morning moved along, with the Dow storming ahead to an advance north of 100 points in the process. The advance would strengthen as we moved into the lunch hour, with the Dow gaining close to 150 points as we entered the final two hours of the trading day. It seems as though when the subject is global politics, including trade, China, and now Turkey, the market wilts. When attention turns to the economy and earnings, stocks recoup their losses and head higher.
So, with the economy generally sound and earnings seasons, which is fast wrapping up, being a good one, there has been strong incentive to continue buying. That has helped to keep the market from pulling back seriously, even as we have had a few selling squalls, such as Friday and Monday. As to the Turkish situation, the country's stock market and its currency both rebounded after its foreign minister said he was willing to talk to foreign investors about its troubled financial situation and outlook. Our market took off, too, as the afternoon progressed, with the Dow and the NASDAQ both breaking strongly higher, as did the smaller indexes.
Things remained in a bullish mode as the day wound down and into the close. In all, the Dow would finish 112 points to the good, after soaring to a gain north of 150 points in mid-afternoon. Even greater strength, proportionately, was noted by the S&P 500 and the NASDAQ. But the index winners were the Russell 2000 (the small-cap composite) with an advance of just over one percent and the S&P Mid-Cap 400 with a gain just under 1%. Looking more deeply at the performance, we saw that all 10 of the leading equity sectors rose on the day, while the NYSE saw an advance-decline ratio in favor of the bulls of more than five-to-two.
Now, a new day dawns and with it we see that the leading indexes were lower in Asia overnight, with a particularly big loss in China, while in Europe, the major bourses are trading down, as well. Also, oil, a gainer yesterday, is trading lower this morning on a build in U.S. stockpiles at this hour, while yields on the 10-year Treasury note, which concluded action at 2.90% yesterday, are at 2.88% thus far this morning. Finally, after yesterday's nice comeback by the bulls, the U.S. futures are posting early losses when the market opens today.
– Harvey S. Katz, CFA
At the time of this article’s writing, the author did not have positions in any of the companies mentioned.
